To calculate your IBM Kyndryl cost basis after the November 2021 spin-off, split your original IBM cost basis between the two stocks: 95.8% stays with your IBM shares and 4.2% moves to the Kyndryl shares you received. The spin-off itself was a tax-free distribution under Internal Revenue Code Section 355, so simply receiving the Kyndryl stock did not create a taxable event.1Office of the Law Revision Counsel. 26 U.S. Code 355 – Distribution of Stock and Securities of a Controlled Corporation What matters now is getting the split right, because that adjusted basis is what determines your gain or loss whenever you sell either stock.
Where the 4.2% and 95.8% Come From
On November 3, 2021, IBM distributed one share of Kyndryl for every five IBM shares held by shareholders of record as of October 25, 2021.2Kyndryl Holdings, Inc. Spin-off Information Federal tax law requires you to divide your original IBM basis between the two stocks based on their relative fair market values right after the spin-off, and the total basis across both stocks must equal exactly what you originally paid for the IBM shares.3Office of the Law Revision Counsel. 26 USC 358 – Basis to Distributees
IBM used the November 4, 2021 closing prices, the first full trading day for both companies. IBM closed at $120.85 and Kyndryl at $26.38. For every five IBM shares held, you ended up with a combined value of $630.63 ($120.85 × 5 + $26.38), of which $26.38 sat in Kyndryl. That produces the official allocation: 4.2% of your original basis to Kyndryl, 95.8% to IBM.4IBM. Form 8937 – Report of Organizational Actions Affecting Basis of Securities
A Worked Example
Say you bought 100 shares of IBM at $150, for a total basis of $15,000. In the spin-off, you received 20 Kyndryl shares (100 ÷ 5). Apply the percentages to the $15,000:
- Kyndryl basis: $15,000 × 4.2% = $630 total, or $31.50 per share across 20 Kyndryl shares.
- IBM basis: $15,000 × 95.8% = $14,370 total, or $143.70 per share across 100 IBM shares.
Your combined basis is still $15,000. Your IBM per-share basis dropped from $150 to $143.70 because part of that value now lives in the Kyndryl shares.
Apply the Split to Each Purchase Lot
If you accumulated IBM shares across multiple purchases, dividend reinvestments, or an employee stock purchase plan, each buy is its own tax lot with its own basis and purchase date. The 4.2%/95.8% split applies to each lot individually, not to your position as a whole.
Suppose you bought 50 shares at $130 in 2015 and another 50 shares at $170 in 2019. The 2015 lot’s $6,500 basis splits into $273 for 10 Kyndryl shares and $6,227 for the 50 IBM shares. The 2019 lot’s $8,500 basis splits into $357 for 10 Kyndryl shares and $8,143 for the 50 IBM shares. Tracking this lot by lot matters when you sell, because each lot carries its own holding period and its own gain or loss.
When you place a sell order, your broker will default to first-in, first-out unless you use specific identification and pick the lot yourself. Specific identification lets you sell higher-basis lots to shrink a gain, or lower-basis lots to harvest a loss. You have to make the selection before the trade settles.
Holding Period Carries Over to Kyndryl
The Kyndryl shares inherit the holding period of the IBM shares they came from. If you bought IBM in 2018, the Kyndryl shares tied to that lot are treated as held since 2018, not since the November 2021 distribution.5Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property For anyone who held IBM more than a year before the spin-off, that means the Kyndryl shares already qualify for long-term capital gains treatment.
Check Your 1099-B Against the Allocation
Brokerage firms were supposed to reduce the IBM basis and establish the Kyndryl basis automatically. Not all of them did it correctly. Some kept the full pre-spin-off basis on the IBM shares and gave the Kyndryl shares a zero basis. Some made the adjustment on shares held in-house but missed shares transferred in from another firm. Before you file, compare the basis figures on your 1099-B to what the 4.2%/95.8% allocation should produce.4IBM. Form 8937 – Report of Organizational Actions Affecting Basis of Securities
Sales get reported on Form 8949, which then flows to Schedule D. If the broker reported an incorrect basis to the IRS (boxes A or D checked), enter the broker’s figure in column (e), put adjustment code “B” in column (f), and put the correction amount in column (g). If the basis was not reported to the IRS (boxes B or E checked), enter the correct basis directly in column (e) and put zero in column (g).6Internal Revenue Service. 2025 Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets Keep IBM’s Form 8937 and your own worksheet with your tax records.
Cash for the Fractional Kyndryl Share
IBM did not distribute fractional Kyndryl shares. If your IBM count was not evenly divisible by five, you received cash instead of the fractional share, and the IRS treats that as if you received the fractional share and immediately sold it.7SEC.gov. EXHIBIT 99.1 The gain or loss equals the cash you got minus the allocated basis of that fractional share, using the same 4.2% split.
Using the earlier example’s $31.50 per-share Kyndryl basis: a hypothetical 0.6 fractional share would have carried $18.90 of basis (0.6 × $31.50). If you received $15.83 in cash for it, you had a $3.07 capital loss. This was reportable on your 2021 return. If you missed it, the amount is usually small; the three-year window for amending a 2021 return filed in April 2022 closed in April 2025 for most filers.
Shares Held in an IRA or 401(k)
None of this basis work applies to IBM shares held inside a traditional IRA, Roth IRA, or 401(k). Spin-off shares received inside a tax-advantaged account are not a taxable event, and there is no basis to track for those holdings. Traditional account distributions are taxed as ordinary income regardless of the underlying investment’s basis, and qualified Roth distributions are tax-free. The 4.2%/95.8% split only matters for shares held in a regular taxable brokerage account.
Getting a Copy of IBM’s Form 8937
IBM’s Form 8937 is the source document for the closing prices, the distribution ratio, and the official allocation percentages. You can download it from IBM’s investor relations site or from Kyndryl’s shareholder resources page.2Kyndryl Holdings, Inc. Spin-off Information Keep it with your tax records as long as you hold either stock, plus three years after you sell. If a preparer is handling the return, give them the 8937 along with your original IBM purchase confirmations and they will have everything they need.